---

UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-Q/A





| | þ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - |  | ---------------------------------------------------------------------------------------




| | For |  | the quarterly period ended March 31, 2002
| | --- |  | -----------------------------------------




or





| |  ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - |  | ----------------------------------------------------------------------------------------




| | For |  | the transition period fromto
| | --- |  | ----------------------------




Commission file number 0-19654





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VITESSE SEMICONDUCTOR CORPORATION


(Exact name of registrant as specified in its charter)





Delaware

77-0138960(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification
No.)





741 Calle Plano


Camarillo, CA 93012


(Address of principal executive offices)





(805) 388-3700


(Registrants telephone
number, including area code)





---




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days: Yes  þ  No  ̈ .





As of April 30, 2002, there were 200,816,561 shares of $0.01 par value common stock outstanding.





---



---




Item 1 of the March 31, 2002 10-Q has been amended to correct the Unaudited
Condensed Consolidated Statement of Cash Flow for the six months ended March 31, 2001.




1




---




PART I


FINANCIAL INFORMATION





VITESSE SEMICONDUCTOR CORPORATION





CONDENSED CONSOLIDATED BALANCE SHEETS


(in
thousands, except share data)





March 31, 2002


Sept. 30, 2001(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
100,121


$
92,847Short-term investments (principally marketable securities)


138,784



126,938Accounts receivable, net


49,542



53,730Inventories, net


42,538



44,833Prepaid expenses and other current assets


15,917



12,447Deferred tax assets, net


22,910



22,910Total current assets


369,812



353,705Long-term investments (principally marketable securities)


270,446



454,849Property and equipment, net


202,131



248,332Restricted long-term deposits


92,600



87,987Goodwill, net


551,949



553,066Other intangible assets, net


35,764



42,057Deferred tax assets, net


122,902



122,902Other assets


65,720



69,884$
1,711,324


$
1,932,782LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt

$
1,359


$
897Current portion of convertible subordinated debt






69,765Accounts payable


19,714



21,463Accrued expenses and other current liabilities


15,742



23,198Accrued interest expense


434



955Income taxes payable


14,582



12,172Total current liabilities


51,831



128,450Long-term debt


1,247



1,703Derivative liability


15,247



Convertible subordinated debt, net of $15,248 discount


438,580



467,328Minority interest


6,377



6,296Shareholders equity:Common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 198,347,998 and 197,440,321 shares
on March 31, 2002 and Sept. 30, 2001, respectively


1,983



1,974Additional paid-in capital


1,398,885



1,396,466Deferred compensation


(63,690
)


(81,582
)Retained earnings(deficit)


(139,136
)


12,147Total shareholders equity


1,198,042



1,329,005$
1,711,324


$
1,932,782





See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.




2




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VITESSE SEMICONDUCTOR CORPORATION





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


(in thousands, except per share data)





Three Months Ended


Six Months EndedMar. 31, 2002


Mar. 31, 2001


Dec. 31, 2001


Mar. 31, 2002


Mar. 31, 2001Revenues

$
42,089


$
121,757


$
39,149


$
81,238


$
286,823Costs and expenses:Cost of revenues


22,640



46,004



33,916



56,556



98,351Engineering, research and development


44,335



38,101



45,031



89,366



71,766Selling, general and administrative


17,035



18,259



17,471



34,506



35,924Restructuring charge


276







64,299



64,575



Amortization of intangible assets


3,147



20,893



3,146



6,293



41,227Total costs and expenses


87,433



123,257



163,863



251,296



247,268Income (loss) from operations


(45,344
)


(1500
)


(124,714
)


(170,058
)


39,555Interest income


4,843



13,712



5,159



10,002



29,124Interest expense


(3,900
)


(8,388
)


(4,324
)


(8,224
)


(16,693
)Other expense






(654
)










(654
)Other income, net


943



4,670



835



1,778



11,777Income (loss) before income taxes and extraordinary item


(44,401
)


3,170



(123,879
)


(168,280
)


51,332Income tax expense (benefit)






14,394



(6,495
)


(6,495
)


34,454Income (loss) before extraordinary item


(44,401
)


(11,224
)


(117,384
)


(161,785
)


16,878Extraordinary gain on early extinguishment of debt, net of $6,596 of tax expense










10,502



10,502



Net income (loss)

$
(44,401
)

$
(11,224
)

$
(106,882
)

$
(151,283
)

$
16,878Basic and diluted extraordinary gain per share:

$



$



$
0.05


$
0.05


$
Net income (loss) per share:Basic

$
(0.22
)

$
(0.06
)

$
(0.54
)

$
(0.76
)

$
0.09Diluted

$
(0.22
)

$
(0.06
)

$
(0.54
)

$
(0.76
)

$
0.09Shares used in per share computations:Basic


198,043



182,150



197,543



197,811



181,383Diluted


198,043



182,150



197,543



197,811



192,619





See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.




3




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VITESSE SEMICONDUCTOR CORPORATION





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(in thousands)





Six Months EndedMarch 31, 2002


March 31, 2001Cash flows from operating activities:Net income (loss)

$
(151,283
)

$
16,878Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation and amortization


42,493



63,696Property and equipment write off


46,958



Inventory write off


12,033



Prepaid maintenance write off


16,201



Amortization of debt issue costs and debt discount


651



1,919Amortization of deferred compensation


16,185



5,748Extraordinary gain on extinguishment of debt, net


(10,502
)


Gain on derivative instrument


(1
)


Increase in equity associated with tax benefit fromexercise of stock options






46,238Deferred tax assets, net






(11,836
)Change in assets and liabilities:(Increase) decrease in, net of effects of acquisitions:Accounts receivable, net


4,188



(18,624
)Inventories, net


(9,738
)


(20,707
)Prepaid expenses and other current assets


(19,671
)


(16,998
)Other assets


2,396



(14,255
)Increase (decrease) in, net of effects of acquisitions:Accounts payable


(1,749
)


18,984Accrued expenses and other current liabilities


(6,860
)


(12,429
)Income taxes payable


(4,186
)


(8,307
)Net cash provided by (used in) operating activities


(62,885
)


50,307Cash flows from investing activities:Investments, net


172,557



(84,736
)Capital expenditures


(36,482
)


(111,224
)Restricted long-term deposits


(4,613
)


(4,942
)Payment for purchase of companies, net of cash acquired






(11,242
)Net cash provided by (used in) investing activities


131,462



(212,144
)





See accompanying Notes to Condensed Consolidated Financial Statements.




4




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VITESSE SEMICONDUCTOR CORPORATION





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(in thousands)





Six Months EndedMarch 31, 2002


March 31, 2001Cash flows from financing activities:Principal payments under long-term debt and capital leases


(469
)


(7,506
)Repurchase of convertible subordinated debt


(65,050
)


Capital contributions by minority interest limited partners


81



4,190Proceeds from issuance of common stock, net


4,135



25,577Net cash provided by (used in) financing activities


(61,303
)


22,261Net increase (decrease) in cash and cash equivalents


7,274



(139,576
)Cash and cash equivalents at beginning of period


92,847



257,081Cash and cash equivalents at end of period

$
100,121


$
117,505Supplemental disclosures of cash flow information:Cash paid during the period for:Interest

$
6,741


$
14,640Income taxes

$
314


$
8,368Supplemental disclosures of non-cash transactions:Property and equipment financing

$
475


$
Reversal of accrued acquisition costs

$
1,117


$
Cancellation of stock options

$
1,439


$
Issuance of stock options in purchase transaction

$



$
5,221Issuance of common stock in purchase transaction

$



$
6,112





See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.




5




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VITESSE SEMICONDUCTOR CORPORATION





NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS







Note 1.    Basis of Presentation and Significant Accounting Policies





The accompanying condensed consolidated financial statements are unaudited and include the accounts of
Vitesse Semiconductor Corporation and its subsidiaries (the Company). All intercompany accounts and transactions have been eliminated. In managements opinion, all adjustments (consisting only of normal recurring accruals) which are
necessary for a fair presentation of financial condition and results of operations are reflected in the attached interim financial statements. This report should be read in conjunction with the audited financial statements presented in the 2001
Annual Report. Footnotes and other disclosures which would substantially duplicate the disclosures in the Companys audited financial statements for fiscal year 2001 contained in the Annual Report have been omitted. The interim financial
information herein is not necessarily representative of the results to be expected for any subsequent period.





Cash Equivalents and Investments





The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents. Investments with maturities over three months and up to one year are considered short-term investments. Investments with maturities over one year are considered long-term
investments. Cash equivalents and investments are principally composed of money market accounts, commercial paper rated A-1, P-1 and obligations of the U.S. government and its agencies. Pursuant to Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities, the Company classifies its debt securities as held-to-maturity securities, which are recorded at amortized cost, adjusted for the amortization or accretion of
premiums or discounts. As of March 31, 2002 and September 30, 2001, the carrying value was substantially the same as market value.





Derivative Instruments and Hedging Activities





The Company utilizes interest rate
swap agreements to manage interest rate exposures in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, andSFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activitiesan Amendment of SFAS No. 133.The Company records all derivatives on the balance sheet at fair value.





Computation of Net Income (Loss) per Share





The reconciliation of shares used to calculate
basic and diluted income (loss) per share consists of the following (in thousands):




6




---



VITESSE SEMICONDUCTOR CORPORATION





NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Three Months Ended

Six Months EndedMar. 31, 2002

Mar. 31, 2001

Dec.31, 2001

Mar. 31, 2002

Mar. 31, 2001Shares used in basic per share computationsweighted average shares outstanding

198,043

182,150

197,543

197,811

181,383Net effect of dilutive common share equivalents based on treasury stock method









11,236Shares used in diluted per share computation

198,043

182,150

197,543

197,811

192,619





Stock options and other convertible securities exercisable for
43,303,153, 16,584,160 and 44,585,205 shares that were outstanding at March 31, 2002 and 2001, and December 31, 2001, respectively, were not included in the computation of diluted net income (loss) per share, as the effect of their inclusion would
be antidilutive. The antidilutive common stock equivalents consist of employee stock options and the convertible subordinated debentures that are convertible into the Companys common stock at a conversion price of $112.19.





Reclassifications





Where necessary, prior periods information has been reclassified to conform to the current period condensed consolidated financial statement presentation.





Note 2.    Restructuring Costs and Other Special Charges





Restructuring costsIn the first quarter of fiscal 2002, the Company announced a restructuring plan as a result of the continued decrease in demand for its products, a
shift in the industrys technology and efforts to align its cost structure with the current business environment. This restructuring plan included a workforce reduction, consolidation of excess facilities and write-down of fixed assets deemed
impaired. Restructuring costs of $0.3 million and $64.6 million were recognized in the three and six months ended March 31, 2002, respectively. The summary of restructuring costs and activity related to the restructuring liabilities, including a
rollforward of restructuring charges recognized in the prior year are outlined as follows (in thousands):





Workforce Reduction


Excess Facilities


Impairment Of Assets


TotalBalance at September 30, 2001

$
1,229


1,706





2,935Total charge


1,012


404


63,159


64,575Noncash charges





(662
)

(63,159
)

(63,821
)Cash payments


(1,139
)

(572
)




(1,711
)Balance at March 31, 2002

$
1,102


876





1,978




7




---



VITESSE SEMICONDUCTOR CORPORATION





NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







In November 2001, the Company reduced its workforce by 130 employees,
primarily within the Companys manufacturing and research and development operations, and recorded a charge of approximately $0.3 million and $1.0 million, in the three and six months ended March 31, 2002, respectively, primarily related to
severance and fringe benefits. The termination of these employees was completed in the current quarter. The consolidation of excess facilities resulted in a charge of $0.4 million which represents lease terminations, non-cancelable lease costs and
write off of leasehold improvements and office equipment related to the leases and will be paid over the respective lease terms through May 2003.





From fiscal 1999 through early fiscal 2001, the Company aggressively expanded its manufacturing capacity in order to meet expected demand. As a result of the significant decrease in demand during the
last six months of fiscal 2001, continuing into fiscal 2002, and the rapid changes in the technology processes within the industry, the Company recorded a charge of approximately $63.2 million in the first quarter of fiscal 2002 for the elimination
of certain excess manufacturing equipment equaling $47.0 million, including fabrication and test equipment, and prepaid maintenance contracts associated with that equipment equaling $16.2 million. This charge also included the write off of certain
software licenses under non-cancelable agreements associated with research and development employment positions which were eliminated as a result of the cancellation of projects deemed non-strategic and projects the Company determined would not
yield an acceptable return on investment.





In the quarter ended June 30, 2001, the Company implemented a similar
restructuring plan due to the sharp decline in demand for its products resulting in a charge of $26.6 million, with a remaining accrued restructuring balance of $2.9 million as of September 30, 2001. In the six months ended March 31, 2002, the
Companys activities related to the 2001 restructuring accrual resulted in cash payments of approximately $0.7 million and non-cash charges of approximately $0.5 million.





Note 3.    Goodwill and Other Intangible Assets





In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001, and that certain intangible assets acquired in a business combination be recognized as assets apart from goodwill. Statement 142 requires goodwill to be tested for impairment under certain
circumstances, and written down when impaired, rather than being amortized as previous standards required. Furthermore, Statement 142 requires intangible assets, other than goodwill, to be amortized over their useful lives unless these lives are
determined to be indefinite. Other intangible assets are carried at cost less accumulated amortization. Amortization is computed over the useful lives of the respective assets, generally two to ten years.





Statement 142 is effective for fiscal years beginning after December 15, 2001; however, the Company has elected to adopt the statement
effective as of October 1, 2001. In accordance with Statement 142, the Company has ceased amortizing goodwill totaling $552.0 million, including $6.4 million of acquired workforce previously classified as other intangible assets.





The following table presents details of the Companys total other intangible assets (in thousands):




8




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VITESSE SEMICONDUCTOR CORPORATION





NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Gross Carrying Amount

Accumulated Amortization


Net BalanceMarch 31, 2002Customer relationships

$
813

(813
)

Technology


43,765

(10,698
)

33,067Covenants not to compete


4,000

(1,303
)

2,697Total

$
48,578

(12,814
)

35,764September 30, 2001Customer relationships

$
813

(610
)

203Technology


43,765

(5,496
)

38,269Covenants not to compete


4,000

(415
)

3,585Workforce


11,110

(4,709
)

6,401Total

$
59,688

(11,230
)

48,458





The following table presents the amortization expense of other
intangible assets as reported in the Consolidated Statements of Operations (in thousands):





Three Months Ended

Six Months EndedMar. 31, 2002

Mar. 31, 2001

Dec. 31, 2001

Mar. 31, 2002

Mar. 31, 2001Amortization expense

$
3,147

$
530

$
3,146

$
6,293

$
1,060





The estimated future amortization expense of other intangible
assets is as follows (in thousands):





Fiscal year

Amount2002 (remaining six months)

$
4,7582003


9,5162004


8,8792005


8,0482006


4,1462007


190Thereafter


227Total


35,764





The following presents the impact of Statement 142 on net income
(loss) and net income (loss) per share had the statement been in effect for the second quarter of fiscal 2001 and the six month period ended March 31, 2001 (in thousands, except per share amounts):




9




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VITESSE SEMICONDUCTOR CORPORATION





NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Three Months Ended


Six Months EndedMar. 31, 2002


Mar. 31, 2001


Dec. 31, 2001


Mar. 31, 2002


Mar. 31, 2001Reported net income (loss)

$
(44,401
)

$
(11,224
)

$
(106,882
)

$
(151,283
)

$
16,878Adjustments:Amortization of goodwill






19,844










$
39,226Amortization of workforce






519











941Adjusted net income (loss)

$
(44,401
)

$
9,139


$
(106,882
)

$
(151,283
)

$
57,045Basic net income (loss) per shareas reported

$
(0.22
)

$
(0.06
)

$
(0.54
)

$
(0.76
)

$
0.09Basic net income (loss) per shareadjusted

$
(0.22
)

$
0.05


$
(0.54
)

$
(0.76
)

$
0.31Diluted net income (loss) per shareas reported

$
(0.22
)

$
(0.06
)

$
(0.54
)

$
(0.76
)

$
0.09Diluted net income (loss) per shareadjusted

$
(0.22
)

$
0.05


$
(0.54
)

$
(0.76
)

$
0.30





The Company only operates within one reporting unit. Therefore, any
allocation of goodwill is not required. Upon the adoption of SFAS No. 142 and in accordance with its provisions, the Company did not record any transitional impairment charges.





The Company is required to perform goodwill impairment tests on an annual basis and between annual tests in certain circumstances. As of March 31, 2002, no impairment of
goodwill has been recognized. Future goodwill impairment tests may result in charges to earnings if the Company determines that goodwill has become impaired.





Note 4.    Inventories, net





Inventories consist of the
following (in thousands):





March 31, 2002

Sept. 30, 2001Raw materials

$
5,678

$
3,978Work in process and finished goods


36,860


40,855$
42,538

$
44,833





During the first quarter of fiscal 2002, the Company wrote off
$12.0 million of excess and obsolete inventories. The continued industry-wide reduction in capital spending and the resulting decrease in demand for the Companys products, resulted in significant adjustments to reduce sales forecasts
established at the end of fiscal year 2001. As a result, the Company recorded a charge, in accordance with the Companys inventory reserve methodology, which was included in the costs of revenues in the quarter ended December 31, 2001.




10




---



VITESSE SEMICONDUCTOR CORPORATION





NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Note 5.    Debt





In October and November 2001, the Company purchased $83.3 million principal amount of its 4% convertible subordinated debentures due March
2005 at prevailing market prices, for an aggregate amount of approximately $65.1 million. As a result, the Company recorded an extraordinary gain on early extinguishment of debt of approximately $10.5 million, net of income taxes of $6.6 million and
a proportion of deferred debt issuance costs of $1.1 million, in the quarter ended December 31, 2001.





Note
6.    Derivative Instruments and Hedging Activities





In the quarter ended December 31,
2001, the Company entered into an interest-rate related derivative instrument to manage its exposure on its debt instruments that is recorded as a derivative liability. The Company does not enter into derivative instruments for trading or
speculative purposes.





By using derivative financial instruments to hedge exposures to changes in interest rates,
the Company exposes itself to credit risk and market risk. Credit risk is the risk of the counter-party failing to perform under the terms of the derivative contract when the contracts value is in the Companys favor. The Company
minimizes the credit risk in derivative instruments by entering into transactions with high-quality counterparties.





Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with the interest-rate contract is managed by establishing and monitoring parameters
that limit the types and degree of market risk that may be undertaken.





The Company assesses interest rate risk by
continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate
risk attributable to both the Companys outstanding or forecasted debt obligations as well as the Companys offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow
sensitivity analysis, to estimate the expected impact of changes in interest rates on the Companys debt.





The Company uses fixed debt to finance its operations. The debt obligation exposes the Company to variability in the fair value of debt due to changes in interest rates. Management believes it is prudent to limit the variability. To
meet this objective, management entered into an interest rate swap agreement to manage fluctuations in debt resulting from interest rate risk and designated this agreement as the hedging instrument in a fair value hedging relationship under SFAS
133. This swap changes the fixed-rate exposure on the debt to variable. Under the terms of the interest rate swap, the Company receives fixed interest rate payments and makes variable interest rate payments, thereby managing the value of debt.





Changes in the fair value of the interest rate swap designated as hedging instruments that effectively offset the
fair value variability associated with fixed-rate, long-term debt are reported in interest expense as a yield adjustment of the hedged debt.




11




---



VITESSE SEMICONDUCTOR CORPORATION





NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Interest expense for the six months ended March 31, 2002 includes a
deminimus amount of net gains representing fair value hedge ineffectiveness arising from slight differences between the fair value change in the interest rate swap and the change in fair value of the hedged debt obligation. The maximum term over
which the Company is hedging exposures to the variability of debt for interest risk is 39 months. There were no hedges discontinued during the current quarter.




12




---




SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.





VITESSE SEMICONDUCTOR CORPORATIONBy:

/s/    EUGENE F.
HOVANECEugene F. Hovanec Vice
President, Finance and Chief Financial Officer





June 13, 2002




13